How do hedging instruments work?

Prerequisites

No prior knowledge is required.

Objectives

◗ Identify the conditions for the emergence of currency, interest-rate and commodity risks

◗ Distinguish between partial and total hedging strategies, and their costs

◗ Use the main families of derivative financial instruments wisely

◗ Analyze the accounting issues related to their use in hedging

Training program

◗ Understanding the fundamentals of interest rate instruments

- How a fixed- or variable-rate bond works,
- Vanilla bonds, sustainable bonds, linked bonds
- Impact of interest-rate variations on the valuation of a liability
- Credit risk and cost of debt, financial ratings

✔ UNDERSTANDING | Illustration: comparing the advantages and disadvantages
of financing through the market (bond) or through a bank loan
✔ APPLY | Case study: valuing a fixed-rate bond using a yield curve
curve (simplified calculation)
✔ ASSESS | Quiz: what do you think... Why does a rise in interest rates reduce the value of a bond?
the value of a bond?

◗ Using interest rate hedging instruments

- Interest rate swaps: hedging logic, fixed vs. variable flows
- Optional hedging: cap, floor, collar
- Choice according to visibility, budget, flexibility and P&L impact

✔ APPLY | Case study: determining the fixed rate of a swap when negotiating
with the bank counterparty
✔ ASSESS | Quiz: how a swap and an interest-rate option work and valuation

◗ Mastering currency hedging instruments

- Firm hedging: forward contract, currency swap
- Optional hedging: vanilla option, tunnel
- Choice according to visibility, budget, flexibility and P&L impact

✔ APPLY | Case study: choosing the right hedging tool for a USD settlement
3-month horizon
✔ EXPERIMENTALIZE | Workshop: compare the results of a tunnel and a forward
on the same export case
✔ EVALUATE | Quiz: the more volatile the currency, the higher the option premium - TRUE or FALSE?

◗ Applying IFRS hedge accounting

- Overview of the 3 types of hedging
- Cash Flow Hedge (CFH)
- Fair Value Hedge (FVH)
- Net Investment Hedge (NIH)
- IFRS9 criteria: documentation, effectiveness, economic link
- Processing : OCI, income, revaluation and mismatch

✔ UNDERSTANDING | Guided study: comparing CFH and FVH accounting treatments
✔ APPLY | Case study: applying hedge accounting to an import transaction
of an import transaction and qualify the IFRS treatment of a 5-year cross currency swap
✔ ASSESS | Quiz: what do you think... Does accounting inefficiency call into question
CFH treatment?

Why choose this course?

The products used to cover risks are numerous and sometimes sophisticated, to meet a multitude of specific needs.
This training course will help you to understand how the main products work and their characteristics, and to master the principles governing their use.

Teaching and assessment methods

Before: self-assessment quiz

During the session: practical case studies (some of which are carried out on spreadsheets during the session), interactive quizzes and discussions during the session to ensure that you have acquired the knowledge you need. Illustrations drawn from current events.

After the session: The trainer is available to answer any questions relating to the training.

General training | FinHarmony Conseil & Formation